Top 5 Trading Adages 16 Jan ’19

by Rahul Rana | Jan 17, 2019 | Uncategorized

Trading Adages are popular ‘Proverbs’ basically trading advice expressions that have been around for some time. Many trading advice expressions were coined to describe the dynamics of stock prices to remind us how to avoid traps and seize opportunities. Below, we’ve shared some of the most common maxims traders have been using for decades to reflect important insights into speculation of market movement.

5. No one ever went broke taking a profit:

Encouraging yourself to keep snatching small profits considering the fact that there’s nothing wrong with ever taking a profit no matter how small it is. Of course, it doesn’t stand up to reason because if you really are continually just taking small profits and you have losses subsequently that exceed the profits then you can lose your risk capital soon enough.
Just the kind of expression that traders use to reassure themselves that they are doing the right thing by snatching at a small profit though there’s anything wrong in that also if you intend to make money then no doubt you have to take profit at some point but the idea that it is never wrong and you can’t end up going broke if you’re taking a tiny profit isn’t really something that adds up in the long run.

4. Buy the Rumor and Sell the fact:

Whenever you see the market behaving in an austere unexpected manner to a piece of news that has been reported to the market, the idea of aligning yourself with the way the market is moving in regards to an expectation about a piece of news is what this phrase is really about. Often, when the news comes out you’ll see the market moving in a slight contrarian manner to that.
This saying reminds us that rumor can drive a rally or a sell-off in a stock. People are speculating on the impact of what they hear and this is getting baked into the stock’s price. If the rumors are proven to be true, then much of the impact may already be reflected in the price. If the rumors aren’t true, this can also impact the stock because those rumors were likely priced into the stock. In short, remember that stocks often move on speculation and then adjust when the news is official.

3. Never Catch a Falling Knife:

Just as it is dangerous to catch a knife falling to the floor, it is risky to buy a stock selling-off. If your analysis indicates that now is a good time to buy it, you should. But, don’t buy just because it is “on sale”. We’ve all encountered an item in the store that is marked down 10% and three weeks later marked down 25% or more. Purchasing these “sale” items early on can put a dent in your trading account.
 There may be people who attempt to buy that item in the hopes of seeing a bounce-back. In this scenario that plunging stock is the falling knife. This adage is more or less of a warning that it’s more likely for the stock to keep plunging further as the momentum could keep pushing it down the direction it’s going rather you safely negotiate the timing of getting the very bottom of the market and you might want to wait and see for evidence of a recovery rather than trying to catch that falling knife and catch it at the bottom of its decline.

2. There are Old traders then there are Bold traders, but very few Old & Bold traders:

This one is a bit of a rip-off of a flying expression referring to old and bold pilots but nevertheless, it is quite a useful little saying in terms of warning against the dangers of taking on too much risk. This one agrees with the fact that you can be bold and take in a large amount of risk and maybe get away with it in the short term but chances of taking on too much risk being very bold and remaining successful and therefore ending up as an old trader as well, is a very slim chance opportunity and that’s why there are very few OLD BOLD traders in the market.

Honorable Adage Mention:

a) Be Fearful when Others are Greedy and Greedy when Others are Fearful:

There are long term uptrends and downtrends, but at a certain point, the market pendulum will change direction. The timing could be difficult but it is worth paying attention to those times when a company can seemingly do no wrong or when a company can do nothing right. During these times, think like a contrarian and don’t become complacent. This expression is really more of a reminder that every trend will ultimately end which often seems to happen just when it feels like it will go on forever.

b) Never fathom the depth with both your feet:

Don’t take on too much of a risk and put all your risk capital after one trade or in one particular stock is what it’s saying in essence. Diversifying your portfolio, perseverance and good risk management will help you overcome the possibility of falling for impulsive trades.

1. The Trend is your Friend:

This is a reference apparently to Trend following. Now, there are many different strategies that you can employ to make money out of the market. When a trend injures it does tend to result in large price movements and therefore the potential for large profits. If you’re able to successfully stay with the trend which is what the phrase advice. Of course, psychologically it can be very difficult to stay with a trend and what actually is less well-known is the ending of the phrase which is ‘Trend is your friend until the end when it bends’. The timing when you get out of a trend is very difficult because if you get out too soon then you potentially miss out on lots more profit. But to properly stay with the trend means staying with it until it breaks down and that means giving back some of your profit which is exactly what the last bit is referring to ‘Trend is your friend until the end when it bends’ and goes against you, taking back some of your profit.

Some traders believe they need to be different in order to be smart or make money. The challenge is that the trend is a reality. It represents the collective actions of all market participants.